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Instigating reforms

Let’s not wait for the next government. We can work out the solutions.

Written by Arun Shourie | Updated: April 28, 2014 8:24 am
A necessary part of explaining reforms is to shake people into realising how not doing these things will doom us. CR Sasikumar A necessary part of explaining reforms is to shake people into realising how not doing these things will doom us. CR Sasikumar

Let’s not wait for the next government. We can work out the solutions.

“What will Modi do?” At every meeting, in particular of investors, that is the question. No one knows, to paraphrase the great philosopher, but many will tell you!

Even if Modi were not there, and even if everything that we need to know about him were known, the same question would be making the rounds. For, it does what we want done: it shifts responsibility on to someone other than us — in this case, Modi and the civil servants that he may choose. On the one hand, we declare, “The government structure is moribund. It just cannot come up with out-of-the-box, lateral solutions.” On the other, we ask, “What will government do?” In this, we are like the politicians: in one breath, they shout, “The CBI is the Congress Bureau of Investigation”; in the next, “We demand a CBI inquiry.”

Instead, we should take reforms into our own hands. Instead of waiting for Modi to come up with brilliant ideas, we should work out solutions. And we should work them out in detail. Our “solution” must not just be, “Do away with the subsidy on kerosene — everyone knows that subsidised kerosene is being used to adulterate diesel,” but what may be done instead. Shyam Saran gives a good example. He points to the experiment that the IOC launched in a part of Alwar district. Instead of giving kerosene at the subsidised price, the IOC calculated the amount of kerosene subsidy to which the BPL family was entitled, and transferred the amount to its bank account. The family was now to buy kerosene in the market. The result? Kerosene off-take went down by 40 per cent.

Working out solutions in detail is all the more important in this round — the new government will have only six weeks in which to prepare its budget. As the room for manoeuvre in regard to revenues and expenditures is very limited — what with the artificial ways in which the deficit figure was kept down — the only way for the budget to be a meaningful document, a document that will re-establish hope, is for it to furnish a roadmap for reforms. As with all governments on the way in, we can be reasonably sure that, one, this roadmap has not been worked out in the detail that is required; and, two, that the new government will need all the help it can get to lay it out in just six weeks. It is indeed a comment on our times that, till some years ago, organisations like FICCI and CII used to spell out proposals in detail — alas, they became event managers for whoever was in office!

So, the first rule for getting reforms going again is: Work them out, work them out, work them out — yourselves. Do not leave doing so to others, especially not to governments.

The second rule is just as important. There is some point in reaching the solutions to ministers and senior civil servants, of course. But they must, at all times, be a very small part of the audience. Even if we assume that the key ministers and civil servants are well-informed, reforms have to be carried out in the face of a political class and of a public that is not so. Quite the contrary, the political class and the general public have been taught to fear change, they have been taught to think of reforms as a code-word for skewing affairs even more in favour of the rich. Nor is the problem just one of perception. The dread of the future can trigger real consequences, on the street.

Those who will be dislocated by change are here, they are organised, they are vocal, they have 60 years of leftist hectoring on their side. And, because of the perverse nature of the media, these persons get a disproportionate amount of coverage. On the other side, those who will eventually benefit from the change are in the womb of the future. They are not organised. And, in spite of the clearest contrast between the stagnation in the period before 1990 and the growth in the period after that, the advocates of change remain on the defensive. No prime minister, howsoever strong, can disregard this balance of forces. Nor can he disregard the lack of knowledge and the consequential clamour of his party, of the political class a whole — in Parliament and beyond it.

Hence, the second rule is Explain, explain, explain.

A necessary part of doing so is to shake people into realising how not doing these things will doom us. Consider an example. A study points out that in the next 10 years, 240 million are expected to join the labour force. If we set aside vacancies that would arise because of retirements, etc, we will need to create at least 150 million new jobs. That means we need to create at least 15 million new jobs every year. In the last seven years, we have been creating 1.5 to 2 million jobs per year — that is, about a tenth of that number. At this rate, in the 10 years during which 240 million would enter the labour force, we would have created 15 to 20 million jobs. Can there be a surer recipe for a social and violent explosion?

Just as, to ward off danger, we must act “with the urgency of a man whose hair is on fire”, we must also act with the same urgency to avail of the opportunities that have arisen and will just as swiftly rush away. Consider the disquiet that has erupted among several firms that have been operating in China. Wages have risen rapidly in China in the last few years. Intellectual property continues to be open to pillage. And since 2008, there is the overt aggressiveness of China and the Chinese. In just the last month, analysts reported anxieties of German firms and others. The Japanese firms — which have been among the largest contributors to China’s growth — are today facing intimidation of various kinds: a Chinese court has just ordered a Japanese ship to be impounded in regard to compensation claims dating from World War II.

Such factors have caused many a firm to shift operations, at the least to locate additional facilities elsewhere. India would be a natural potential base that they would think about — it is the only country in the region that can provide the kind of scale that China provides for their operations. But our archaic laws, our unpredictable policies, the meteors that descend out of our tax and enforcement offices, corruption, our interminable processes and the rest, together, push those firms to relocate in Bangladesh, Thailand, Vietnam, the Philippines, rather than India.

Similarly, to get things going again, we must bare to the people the truth about the “pro-people” laws and the populist schemes that have been projected as great achievements. Should the handouts through the public distribution system be taken at face-value, when survey after survey shows that anywhere between 30 to 90 per cent of the commodities distributed are siphoned off along the way? Do our anti-employment labour laws, our provisions to prevent bankruptcy, the law by which any seven workers in an establishment can form a trade union, actually protect the millions who labour or do they just perpetuate a labour aristocracy? Does the Apprenticeship Act protect the apprentices or, as a fine report of Manish Sabharwal and his colleagues to the Planning Commission shows, is it one of the main reasons on account of which India has only 3 lakh apprentices while the so much smaller Germany has 10 million, to say nothing of China, which has 40 million?

Similarly, competitive populism among political parties focuses on each “pro-farmer”, “pro-worker” measure separately. It obscures the consequences of one for the other, it obscures the vicious cycles that they trigger together. We groan about inflation. We eventually say it is “food inflation”. But if we keep throwing money into the countryside — through debt write-offs, through NREGA and the rest, without raising agricultural productivity; if we go on raising minimum support prices, as every political party shouts the government must do, how will inflation, specifically food inflation, not be the consequence? How will the requisite acreage be set aside for the items for which demand is rising fastest — fruits and vegetables — when it is in growing cereals that the farmer has an assured minimum price? In a country in which we import three-quarters of the oil we use, how will we be able to control our current account deficit (CAD) when we continue to subsidise petroleum products?

“Explaining” must include setting out the whole truth. Have our analysts, have our industry organisations spoken up about the fraudulent way in which our fiscal deficit has been shown to have been lowered? Have you heard them nail how that dressing up of figures has narrowed the options for the coming year? Surely, industry knows how the enhanced duty on gold — without any tightening of customs administration — led to a spurt in the smuggling of gold, and that this was one of the main items that enabled us to declare that the recorded CAD had been controlled?

The fact is that very difficult decisions are now inescapable. They are bound to hurt many in the immediate future. Unless the reasons for them have been drilled into the people again and again, how will such decisions be taken?

The third rule is to shift from merely listing out our suggestions to showing how they are to be put into effect. We routinely propose the most radical changes. And yet we know that Parliament will remain paralysed. Even if disruptions abate, for the coming year or two, the non-NDA parties will continue to have a majority in Rajya Sabha. How then are these changes to be brought about? Here are two examples.

One way is to break up the problem into smaller pieces. Enable progressive states to move ahead on their own. So many of the laws that are impeding growth fall in the Concurrent List. Article 254 of the Constitution deals with such subjects. In public discourse, we tend to focus on the first clause of this article — namely, that if there are both a Central and a state law on the subject, and their provisions are opposed to each other, the provisions of the Central law shall prevail. But Clause 2 of this article provides that the state provision shall prevail in the concerned state, provided the president — that is, the Central government — gives the requisite permission. Why not declare that, in regard to education, labour, industrial disputes, agricultural marketing, etc, state laws that enable it to compete with countries that we have to face — say, Southeast Asian countries — shall automatically have the Centre’s approval? A few progressive states will adopt the changes. The advantages that will accrue to them will goad and encourage others to follow suite.

A similar device would be to make allocations to states contingent on their adopting improved practices and policies. For decades and decades, ever since the Gadgil-Mukherjee formula was adopted, the poorer a government ensured its state remained, the more it got from the Centre. Why not turn this around? We have an acute shortage of teachers, we do not have requisite leadership programmes for our seven lakh headmasters? Make allocations to a state contingent on its multiplying and upgrading teacher-training facilities, on its roping in the best institutions and firms in the state to institute leadership programmes. Our literacy rates are low? The quality of teachers varies? Make allocations contingent on their deploying technology to overcome these: the “total immersion” method for enabling persons to read used by F.C. Kohli to such dramatic effect in Andhra Pradesh; linking colleges by information and communications technology (ICT) so that the best teacher on the topic in the state delivers the lecture, and it is seen and heard by students across the state. This is not a “one size fits all” device. Naturally, the states must have great flexibility to tweak the scheme to what suits them best. Naturally, the Centre must continually improve the scheme as it learns from successes in the states.

The fourth rule is not about doing this or doing that; it is about not doing, it is a rule of self-denial. When at last a reform is indeed instituted, when at last an aperture is opened, do not misuse it. As it is, the enemies of change are ever-ready to pounce at every step, to denounce it, to charge that it has been done to benefit “X” or “Y”. If, by the influence they command, “X” or “Y” are in fact able to twist the step to their advantage, or to keep their rivals down, they strike a blow not just at that measure, but at reforms in general.

For any of this to come about, industry leaders as much as academics, as much as us journalists, have to stop being onlookers — waiting for manna to fall from Delhi. Leaders of industry, in particular, have to shed the mentality of the licence-quota period — the mentality that the way ahead is for each to cut a deal for himself by suborning a minister or civil servant, rather than striving to improve the system. They have to stop being clients. They have to stop being event managers for whoever is in office.
Start by not giving “9 out of 10” to every budget!

The writer, a former Rajya Sabha MP from the BJP, was Union minister for communications, information technology and disinvestment.

This article is based on recent remarks to the Capital Markets Committee of FICCI

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